Born In Debt: Modern Greece's 180-Year History Of Borrowing
The comparisons to the present are striking: a 1830s Swiss banker who helped launch the newly formed nation of Greece on the back of credit it could never pay back.
ATHENS— Displayed in elegant glass cases, the first Hellenic bonds are the pride and joy of the National Bank of Greece. “From the beginning, our state had no other choice than to live on credit. We were born in debt,” head archivist Gerassimos Notaras says.
The first Greek currency was the “phoenix,” the legendary bird that is supposed to rise from the ashes.
Here, the historical comparison with the present is unavoidable. On the wall of the Athens reading room, two huge portraits stand sentry. On one side is Genevan banker Jean-Gabriel Eynard, the head of the Philhellenist movement in Europe from 1825 to 1850 and the new Greek state’s first creditor. On the other is Georges Stavros, the first manager of the bank founded with the funds loaned by Eynard. There is but one notable difference compared to today: Back in the 19th century, Germany, a thriving power, was not among the money lenders. The debts were signed by France, the United Kingdom, the Netherlands and Russia.
Ilias Plaskovitis was the secretary general of the Greek Ministry of Finance until the end of 2011. Leaving his office at Syntagma Square, which faces the Parliament, the economist and advisor to the central bank, doesn’t argue that his country is struggling: “Eynard understood the Hellenic dilemma,” he says. “In order to be a reliable borrower, a state must be solid, capable of collecting taxes and developing its economy. But modern Greece has never been able to do that.”
History repeats, again
The parallel is striking. In the 1830s, Eynard was already concerned about the state’s disintegration and pushed the European “powers” to put pressure on the country in order to be reimbursed. Young Greece, barely freed from the Ottoman yoke, was being undermined by struggles among major feudal lords — a situation that Dutch and British bankers exploited.
The Genevan banker, following the footsteps of his friend and independent Greece’s first governor, Jean Antoine Capodistria, who was assassinated in 1831 by a clan from the Peloponnese, struggled to find alternatives. He promised an 8% discount interest rate and swore to lower the rates charged by lenders.
At the time, Greece was reduced to a handful of provinces and islands around Athens and the Peloponnese. Its situation was similar to today’s in that Greece was shut out of capital markets. Its “spreads” would skyrocket with the slightest rumor, calculated on the backs of envelopes by money lenders in muddy back alleys, at the foot of the Acropolis.
“Such a situation,” Eynard wrote to the new king of Greece, Otto, who took the throne in 1834, “in order to be successful, must be treated with as much promptitude as secrecy. This way, it will avoid complaints and intrigue.”
That request has parallels to the negotiations in Brussels over the last three years for the restructuring of unsustainable Greek debt. Even after the 240 billion euros loaned as part of two bailout plans in 2010 and 2012, debt is still peaking at 172% of GDP, when the European Union is aiming for 120% by 2020.
Athens is even openly relying on a new reduction in 2014. “Debt, in Greece, has always been a passionate and ambiguous topic,” historian Gerassimos Notaras says. “The great Hellenic merchants of the Black and Mediterranean seas were money lenders, just like the European monarchies and great families enamored by Greece, such as the Rothschilds. Our whole history is punctuated by loans. We loan out of interest or honor. Then, we negotiate bitterly to be able to pay it off.”
Fast forward to today
Over at the Greek parliament, in the vast lobby radiated by the winter sun, a handful of elected representatives are almost insulting each other. With a tiny margin of just two votes, the government had just passed a new law required by Brussels that deals with property taxes and the seizure of properties if mortgages are not paid. But the conversation becomes most heated when the topic of debt is mentioned.
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In their hands? File photo of then economic chiefs of UK, France and US (Stephen Jaffe)
A member of Syriza, the radical left coalition at the head of the opposition, claims that during Greece’s six-month EU presidency, which began Jan. 1, the country must get “Europe to finally pool the public debts.” Another revives the idea of “demanding that Germany pay its World War II debt,” in reference to the Nazi occupation from 1941 to 1945.
“The fact that the Troïka European Commission, International Monetary Fund and European Central Bank demands that banks should be able to seize the goods of the borrowers who fail to reimburse is a trauma,” one European diplomat says. “We’re aware that many owners have gone too far, but the press only talks about the ‘weak’ who risk losing their home. It’s almost part of our culture. Just like the fact that we don’t respect the state, police forces. Especially when our money is threatened.”
Which brings us to another similarity to Jean-Gabriel Eynard’s time: this illusion of a diaspora always capable of paying, of saving the Greeks who stayed back in the country. “Every municipality with money problems has in mind to solicit the Niarchos, Onassis or Latsis foundations,” says economist Dimitris Katsikas. “An important part of Greece still lives under the impression that a permanent benefactor will be there for them.”
So what is the solution to the Greek debt crisis? The question also tormented Eynard between the 1830s and 1850s. Ultimately, the wealthy banker, who earned his fortune two decades earlier by reorganizing the budgets of several Italian towns, recommended slaloming between creditors. The Swiss businessman, who never went to Greece, had already weighed the continent’s stability.
“It is so important, for Europe’s peace, to maintain tranquility, that I am convinced that the three great powers will not be too demanding with Greece in requiring too strict a repayment,” Eynard wrote to his Greek right-hand man Georges Stavros.
His prediction still stands to this day.